The Motley Fool

Bright Prospects For City Development on Back of Impressive Future Plans

City Developments Limited (SGX: C09), or CDL, is a real estate company listed on the Singapore market that has a presence in 28 countries and regions. Its business segments within the real estate market include property development, hotel operations, rental properties, and others.

In the last six months though, CDL’s stock price has swooned by 7%. Let’s have a quick look at some of its key earnings from its half-year report to understand if the decline makes sense.

Muted financials

Let’s start with some numbers. For the quarter ended 30 June 2019, CDL reported a 26.4% decline in net profit to S$162.4 million. This decline in earnings was largely due to the timing of profits which can only be recognised upon project completion and not progressively. This leads to lumpy earnings for the group.

While earnings were muted on a quarterly basis, on a half-year basis CDL reported an 18.3% increase in profits to S$362 million.

Operations review

Summarising the sales, CDL and its JV associates sold a total of 505 units amounting to S$1.55 billion in the first half of 2019. This was the contribution from sales across multiple projects such as Boulevard 88, Amber Park, New Futura, South Beach residences, Whistler Grand and The Tapestry.

Over in China, the group and its associates sold RMB1.08 billion worth of units in the first half.

Moving to look at future launches, CDL plans to launch a new project in Sengkang Central in the fourth quarter of the year. It is a mixed-used integrated development with proximity to a new bus interchange and the MRT station.

Future growth plans

The property group plans to grow through acquisitions and investments as well as increasing its recurring income in the following ways.

1) Takeover offer for Millennium & Copthorne Hotels plc.

2) Partnership with Sincere Property group in China – this will allow CDL to expands its geographical presence from three to 20 cities in China.

3) 50% stake in IREIT Global Pte Ltd who is the manager of IREIT Global (SGX: UD1U).

4) In connection with Profit Participation Securities 1, the group acquired the remaining instruments from the investors from PPS1. The group believes with the development plans of the nearby areas and the reshaping of Sentosa, more value can be created with the recently-acquired assets.

5) The group has acquired prime properties in Australia, China, and Japan which amounted to A$25.9 million, RMB 1.75 Billion and JPY 2.01 billion respectively.

Foolish takeaway

All in all, CDL’s profitability has been impacted due to lumpy earnings on the back of project recognition timing issues. However, on the positive side, the group is well-positioned to benefit from the strong sales of units in Singapore and China. Additionally, the group is investing for the future by making strategic investments that should pay off in the future.

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Motley Fool writer Esjay contributed to this article. Esjay doesn't own shares in any companies mentioned.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of City Development Limited. Motley Fool Singapore contributor Tim Phillips doesn’t own shares in any companies mentioned.